Rudd targets fat-cat salaries

By Chris Zappone

Exorbitant executive salaries may get a trim under a Federal Government plan to deal with the "extreme capitalism'' at the root of the global financial crisis.

Prime Minister Kevin Rudd today revealed the government will work with the Australian Prudential Regulatory Authority (APRA) to bring fat-cat pay packets under control.

Mr Rudd believes better rules are required to "rein in any executive greed''.

He told the National Press Club that the "failure of extreme capitalism'' had forced governments to prevent the financial system's collapse.

"You've got to act at home and you've got to act abroad on this.

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"This is not just a question of fairness and perceived fairness in the system, it goes actually to the kernel of the incentive structures around risk-taking.

Tough times ahead

Mr Rudd said the Government had set a "national course of action" to steer through the crisis.

"As Prime Minister I won't sit by and watch Australian households suffer the worst effects of a global financial crisis they did not cause."

"The surplus was a prudent and appropriate measure to build up for tough times ahead."

"Those tough times have arrived."

Mr Rudd said Australia was in stronger position than comparable nations.

"The Australian financial system remains strong, the Australian economy remains strong," Mr Rudd said.

He said the lending standards of Australia's financial institutions had not deteriorated.

"We've seen some of the largest one day movements in stock markets in recent history, now taking us into recession across the globe."

Mr Rudd said that the weakening global economic forecast, a downward revision for growth in China and negative consumer business sentiment indexes forced the Government to act yesterday.

"You can look and think that's a lot of trouble bearing down on the Australian economy or you can act. We chose to act."

Executive greed on the agenda

Australia will argue that a clear timetable needs to be agreed to protect global financial stability in the future at next month's G20 meeting, Mr Rudd said.

"We will be urging the G20 to commission an action agenda in collaboration with the International Monetary Fund, the Financial Stability Forum and the Basel Committee on Banking Supervision on the best means of implementing this initiative, preferably by the end of this calendar year.''

He said the government would be working with the relevant Australian regulators to design a template that links capital adequacy requirements to executive remuneration in a way that acts against excessive risk-taking in our financial institutions.

This, he said, could be adopted by the international authorities.

"The Australian government will also now be examining with APRA (the Australian Prudential Regulation Authority) what domestic policy actions would be appropriate in pursuit of this objective, that is, to deal with the problem of executive remuneration to financial institutions.''

The government would work with the Australian Prudential Regulatory Commission (APRA) to prevent executive greed and promote greater financial system stability, Mr Rudd said.

"It's necessary, I believe, to get a better set of rules in place to rein in any executive greed and, at the same time, point in the best direction possible for greater stability in the financial system in the future.''

Mr Rudd said he told the UN General Assembly, in New York, a few weeks ago about the need for a regulatory response to the global financial crisis.

"The Treasurer has been acting on parallel tracks to this and I'm signalling today that APRA will now be developing a template, not just for here in Australia, but for adaptation or adoption through Basel II (banking reporting requirements) arrangements around the world as well.''